Macy's blames sluggish sales on weak shopping malls

Key Points
  • Macy's says its stores at weak malls suffered during the quarter.
  • It says it will offer more details at an investor meeting in February on what it plans to do with some of those stores.
Macy's reports first negative comp sales in two years

Macy's said its stores at weaker U.S. shopping malls were hurt by slower foot traffic during the latest quarter, leading to a steeper-than-expected sales decline.

"We've been investing in malls where our developers are investing and ... we feel really good about that initiative, and those stores continue to outpace the breadth of our fleet," said Hal Lawton, Macy's president, during a post-earnings conference call.

The trouble, however, is at the so-called C- and D-rated shopping malls, which bring in less sales per square foot than an A-rated mall.

U.S. mall owners have been struggling to find new ways to lure shoppers, with traffic dipping as it becomes more convenient to buy things online and store closures piling up. The strongest operators, such as Simon Property Group, have had more capital to invest in adding experiential tenants such as game rooms, better food options, co-working space and even apartments and hotels. But the weaker mall owners, such as CBL, have more encumbered balance sheets, and some of their centers are seen as deteriorating.

Most of Macy's stores are located in so-called A malls, like Macerich's Tysons Corner Center in Virginia, which have seen more enhancements and have strong tenant rosters.

"Where we're investing and our mall developers are investing, we're getting great outcomes," Macy's CEO Jeff Gennette said.

Icahn makes a big bet against malls

Macy's reported its first same-store sales decline in two years on Thursday, a drop of 3.5%. Its shares were last down about 3%, having fallen more than 51% since the start of this year.

"The mall is getting more toxic," Jefferies analyst Randy Konik said. "We have noticed the trend remains the same. ... Value-oriented and off-mall retailers continue to outpace industry trends and take share while on-mall and less value-oriented retailers like Macy's are losing share. Mall traffic will likely continue to wane over the years ahead."

CBL shares are down more than 32% this year. Peer Washington Prime Group has watched its stock fall about 15% year to date. Simon shares have dropped about 12%. Macerich's stock is down nearly 39%. And high-end mall operator Taubman's shares are down 29% in 2019.

Macy's said it will share more details about what it plans to do with some of its stores at underperforming malls at a February analyst meeting.